The yen climbed against the dollar on Friday, boosted by the uncertain risk environment left by Britain's shock vote to leave the European Union as well as the view that the US Federal Reserve will now hold off from raising interest rates. The safe-haven yen had gained 4 percent against the dollar last Friday as the results of Britain's referendum on EU membership became clear, but in the following days it gave back more than 1 percent as risk appetite made a modest comeback.
Although a hint from the Bank of England on Thursday that interest rates would be cut in the coming months gave risk appetite a further boost, it also strengthened the view that the Fed would not now be able to raise rates in the coming months, and even left open the possibility of a US rate cut.
Markets are now pricing in a 7 percent chance of a cut by September, according to CME FedWatch, and have completely priced out the chance of a hike in rates before December. Even at that point, they are pricing in only a 13 percent chance of a hike. "The Bank of Japan was counting on the Fed to look at potentially hiking and now that clearly isn't the case," said UBS Wealth Management currency strategist Geoffrey Yu, in London, noting that this would limit the dollar's upside.
By 1120 GMT, the dollar was 0.6 percent down at 102.62 yen, more than 3 yen clear of a 2-1/2-year low against the Japanese currency hit in the immediate aftermath of the vote for Brexit. "We will have much more global repercussions to all of this ... and, given the risk that global growth will slow, I don't think investors are going to move out of the yen in great numbers," said Rabobank currency strategist Jane Foley, from London.
Foley also suggested that the Australian and New Zealand dollar might be acting as "geographical safe havens" as their economies were strong enough and they were far enough removed from Europe for them to be seen as somewhat insulated from its current problems. The Aussie rose half a percent on Friday to a one-week high of $0.7488, while the kiwi also gained half a percent to trade at a one-week high of $0.7178.
Sterling was 0.1 percent lower on the day at $1.3299, within 2 US cents of Monday's 31-year trough. Against the yen, it skidded more than 1 percent to as low as 136.11, but held off a 3-1/2-year low of 133.65 set last Friday. Against the euro, the pound's falls have not been so steep, although it hit its weakest since March 2014 against the single currency on Thursday.
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